24-64 What kind of interest rate swap (of liabilities)would an FI with a positive funding gap utilize to hedge interest rate risk exposure?
A)Swap in floating-rate payments for fixed-rate payments.
B)Swap in floating-rate receipts for fixed-rate payments.
C)Swap in fixed-rate receipts for floating-rate receipts.
D)Swap in floating-rate receipts for fixed-rate receipts.
E)Swap in floating-rate payments for fixed-rate receipts.

Question

Quizplus · Accepted Answer

An FI with a positive funding gap is exposed to rising interest rates. By swapping floating-rate payments for fixed-rate payments, the FI can hedge against the risk of increasing interest rates, as it will pay a fixed rate and receive a floating rate, which will increase if interest rates rise.

24-64 What Kind of Interest Rate Swap (Of Liabilities)would an FI